US Contractors Divide on Trade Fight With Japan

A RIFT in the United States construction industry has derailed the Bush administration's drive to open Japan's public-works market, and American trade negotiators fear the fallout could undermine other trade negotiations with Japan. Most of the construction industry continues to back negotiators from the Commerce Department and the Office of the US Trade Representative, who want to use economic sanctions to wring market access concessions from Tokyo. Support is especially strong among small and medium-size firms that cannot afford the long lead time needed to win business in Japan, or which face growing competition from Japanese builders in the US.

However, several large American contractors with long experience in Japan believe sanctions would jeopardize the limited success they have begun to achieve, according to Bush administration and industry officials.

Bechtel and Fluor Daniel, for example, are both part of joint ventures that have the inside track on contracts to build passenger terminals at Kansai International Airport, under construction in Osaka.

With the industry divided, the administration's Trade Policy Review Group, an interagency committee, decided last month to postpone sanctions, and to seek a new round of talks with Japan. The talks cannot be held before March 18, according to the Japanese Embassy in Washington, because top government officials must remain in Tokyo for the current parliamentary session.

The decision to hold additional talks was a setback for Commerce Undersecretary Michael Farren, the chief US negotiator, who earlier had set a Jan. 25 deadline for ending the rancorous dispute.

At that time, Japanese negotiators refused to consider an American demand that Japan expand market access beyond the 1988 bilateral Major Projects Agreement, which facilitated American access to 17 public-works projects in Japan.

US officials had warned that failure to meet the Jan. 25 deadline would probably result in retaliation against Japanese construction companies in the US.

Carla Hills, the US Trade Representative, has had authority to impose sanctions since November 1989, when her office officially ruled under Section 301 of the US trade law that American firms are denied fair access to Japan's public-works market.

When the Jan. 25 deadline passed, the administration appeared ready to retaliate. The Commerce Department, according to US construction industry officials, drafted a list of Japanese firms to be hit with sanctions.

The sanctions dispute has caused considerable friction between the industry and government officials.

In a meeting early last month, Mr. Farren ``chastised'' construction industry representatives for wavering on sanctions, according to several participants. Farren reportedly said it was industry who pressured US trade officials to officially rule the Japanese market closed and thereby set in motion the possibility of sanctions. Having done so, Farren said, failure by the Bush administration to follow through would undercut its negotiating position with Japan.

SUPPORTERS believe sanctions are unlikely as long as the big firms remain opposed. ``A few prominent companies with strong political influence are against them, and anti-sanction factions in the administration can point to that,'' an industry official says.

Trade officials are skeptical that much can be accomplished in the next round of talks. ``It's possible another meeting could result in something,'' a top trade official says. ``But if we do not have the option of possible retaliation, we have less leverage with the Japanese.''

Japan insists its construction market is open, and US officials concede some cracks have begun to appear. ``But,'' says a top US trade official, ``the tiny market share US firms have won is not enough to call a success.''

With little leverage in the upcoming talks, US officials say the best they can hope for is modest expansion of the 1988 Major Projects Agreement.

``It is fair to say that trade officials are concerned about the 301 process,'' the trade official says. ``If 301 is undercut, it reduces our negotiating tools and invites Congress to exercise its constitutional right to determine trade policy.''